Dissecting the political body of Europe

Month: November 2011

Proposals to split the euro into northern and southern currency or push Greece out of the eurozone, as for example supported by Frits Bolkestein in recent interviews seem to assume implicitly that the Netherlands would always be among the richer and stronger economies of the EU. With respect to any of the EU’s member states, the assumption that it can predict what its place would be in a future divided Europe, is misguided. Polish Foreign Minister Radek Sikorski reminds us of this in a speech delivered in Berlin last Monday and reprinted in the Financial Times and in Tuesday’s NRC. His examples of economic growth amidst crisis in the EU are Poland (15,4 per cent over the last four years and no recession) and Slovakia. His reminder to Germany that it also has not always kept the rules of the Growth and Stability Pact may have been unwelcome, but it illustrates the same fact from recent history: no EU member state is immune against recession or structural problems. On the other side of this coin, not only Poland and Slovakia but other new(er) member states such as Lithuania are quietly progressing with reform and keeping their budgets healthy. In his opinion piece in the EU observer, Andreas Aslund praises Lithuania for carrying budgetary reform during the crisis without the help of the IMF, implementing a vigorous fiscal adjustment and achieving 6.6 per cent growth annualized growth rate in 2011 after a dramatic slump in GDP in 2009. Most remarkably, the Kubilius government has managed to continue Lithuania’s much praised programme of public administration reforms, initiating this year a functional review system for the administration. Such measures attest not only to prudent fiscal policy but also to a realisation that a capable and modern administration is not a luxury but necessary investment for a country that takes a long term view how to emerge from the crisis. Even Bulgaria, a member state for which no Dutch politician has a good word to say, has been praised by EU Budget Commissioner Lewandowski in October this year for being on track observing financial discipline. “Bulgaria is improving in budget terms. It is within the debt limit and is decreasing the budget deficit. The economic forecast for Bulgaria is quite decent.” Lewandowski said further.

The point of these examples is not that Slovakia, Bulgaria, Lithuania or even Poland have become as rich as the Netherlands or will be any time soon. Their citizens still suffer from the crisis and from poverty and unemployment. These member states, however, have made serious and credible efforts to keep their budgets balanced despite the crisis, a fact which is completely overlooked in the Netherlands. These newer member states should receive at least some credit for not only not causing the current crisis in Europe, but for persevering in taking fiscal discipline seriously despite the harsh effects on their citizens, on the socially weak and pensioners. Slovak doctors went on strike today because of their low salaries, Bulgarian railway workers have been told by the minister of finance that there is no money to answer their demands.

The inability to keep a balanced budget is not a mysterious cultural trait then, as claimed by Frist Bolkestein in his recent interview in AD newspaper, something typical of the Southern EU member states, while only Northern EU member states are careful and prudent in their public spending.

No, the budgetary discipline of Poland, Slovakia, Lithuania and Bulgaria today it is a question of political will, lessons learned from previous crises, commitment to the eurozone and oversight by the European Commission and the IMF. All of this perfectly applicable to Greece or other EU member states faced with similar problems.

The even more important lesson seems to me to be that all of the EU’s member states should decide the future of the eurozone as if behind a veil of ignorance about their own future place in Europe. As Sikorski aptly commented, “To those who would like to divide Europe, I say: how about a natural division into growth-Europe and non-growth Europe? But be forewarned. Their shapes would not conform to stereotypes”.

In an interview for SPIEGEL Timothy Garton Ash coins the wonderful expression ‘easyJet Europe’ to refer to the “European freedom we experience every day”:

The fact that a young man in Greece or Estonia can get on a plane in the morning and fly to Paris or Rome, without border controls and without exchanging money, and perhaps find a wife or friends there, decide to live or find a job there — this is progress that no one should put at risk…… Europe’s biggest problem is its success, which is taken for granted even by young citizens of the Baltic countries, which didn’t even exist on the map of Europe 21 years ago… But if the “easyJet Europe” of freedom is threatened, we will see a mobilization of young Europeans. I’m certain of that.

The Dutch Party for Freedom (PVV) wants fewer foreign students to come to study in the Netherlands. According to Eric Lucassen (PVV) foreign students take the place of Dutch students. The Germans are singled out as the biggest problem. As a former foreign student in the Netherlands and a current teacher at a Dutch institution which prides itself in being a leading international research university my personal position on this issue should be self-evident. However, the problem with foreign students boils down to be the lack of student housing according to the PVV, and I can actually agree that (the lack of) student housing is a problem in some places. Still, the housing shortage is just an unintended side-effect of an otherwise successful edicational policy and any country should be happy to attract students from all over the world. The housing shortage should be addressed but not at the expense of building fences around Dutch universities.

Just learned from EurActiv that the Chinese Central Bank may support Ukraine in funding its state debt, while Ukraine may be suspending talks with the IMF after IMF report of slowed down reforms. The same Euractiv piece links the outcome of the next round of talks between the Ukrainian government and Russia on cheaper Russian gas for the Ukraine with the continuation of IMF talks.

The story’s immediate impact is to make one wonder about the replacement of the EU’s, imperfect but useful conditionality towards democratizing states, by other kinds of relationships and conditions with China or Russia. It would appear to suggest that the EU’s economic crisis and diminishing importance in geopolitical terms due to its chronic inability to harness the member states’ economic clout and political experience are finally taking its toll. The EU just seems not to matter any more as much as it used to, when there are others, like China, who would provide financial support without setting conditions (but is there such a thing as free lunch?). We shall have to follow this development more closely, but the lesson for the EU is unambiguous – while we bicker amongst ourselves, others are engaging in diplomacy which may achieve their long-term economic interests better than the non-diplomacy of the EU or the short-sighted, short-term focus on own interests adopted by some member states.

It is not all doom and gloom, however. The EU can take credit for some of recent success stories in democratization and economic development, such as Poland. Here, I cannot say it any better than Timothy Garton Ash in his Guardian comment, As Poland Shines, Ukraine Sinks. I particularly like his argument that democratic institutions can trump culture, with the inspiring quote from Daniel Patrick Moynihan:

“As the American politician and thinker Daniel Patrick Moynihan wonderfully observed: “The central conservative truth is that it is culture, not politics, that determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself.” Good politics, good constitutions and good courts can, given time and luck, change the course of rivers. Degraded, drunken, corrupt societies – such as Poland might have seemed to the casual visitor 40 years ago – can become modern, open, democratic ones. And the liberal wager is that Orthodox, Islamic and Asian societies can transform themselves too.”

A guest post by Amy Verdun. With our thanks for being the first colleague to join us in this blog’s discussions.

In the past days the euro debt crisis has cost the political lives of Greek Prime Minister George Papandreou and Italian Prime Minister Silvio Berlusconi. What is going on here? It seems that the management of the euro area has now become serious stuff. Political leaders are required to ensure they are able to meet the requirements of being in Economic and Monetary Union, in particular the euro area, whilst maintaining domestic political credibility.

What may look on the surface as two similar situations in reality represents quite different situations. The Greek Prime Minister spent the last months of his political life as prime minister juggling between the needs of Europe and the needs of his domestic political constituency. All this time he sought to strike the right balance. He came home with a financial package agreed to by the European Union leaders in the early hours of 27 October to ensure he would be able to attract enough funding to refinance his debt. As a last surprise action he called for a referendum. It was a daring step, for one who held democratic ideals in high regard, but it proved to be a bridge too far. He had failed to inform his European counterparts, who were taken by surprise, and not amused. The financial markets reacted the same way. The result: tremendous financial and political turmoil and talk of Greece needing to leave the euro area, perhaps even the European Union (EU). Papandreou capitalized on the dire situation to obtain approval from the opposition parties to support the reform package. He survived a motion of no confidence but still needed to make room for a coalition government under a different leader. Meanwhile Lucas Papademos, formerly with the Greek and European central banks, has now stepped up to the plate and has been sworn in as the new Prime Minister. It is noteworthy that the choice has been made for a technocrat (an economist) with tons of experience in the European Central Bank, a prominent European institution, but with no political experience. Yet, it probably is the right step at the current junction. The country needs stability and good communication with European partners. The hope is he can communicate equally well with the coalition partners and convince the Greek public of the difficult steps that need to be taken.

The situation of Berlusconi may seem similar: Political leader makes room because of euro debt crisis and market speculation. In my opinion the situation is quite different. For starters, Berlusconi, contrary to Papandreou, failed to obtain a motion of confidence in the Italian parliament on Tuesday, although he did manage, at the eleventh hour, to push through reform packages. Contrary to Papandreou, Berlusconi has not been trying hard to make the necessary reforms in Italy, to address the urgency of the situation, or to liaise with Europe or with opposition parties. His goal for many years seems to have been to stay in power, to stay out of jail, not having spent too much attention to improving the lives of ordinary Italians. Probably his most remarkable achievement has been to stay in power so long. Italy was long known as a country that had as many governments as years since the Second World War. Berlusconi served off and on since 1994.

What is of course similar to the Greek situation is that the person replacing Berlusconi as Prime Minister will be Mario Monti – again a technocrat, economist, with strong European credentials. Mr Monti is a former EU Commissioner for Competition Policy. He too has a clear understanding of how European institutions work. At the present time it is unclear what the new government will look like whether it will be made up of more technocrats or a mix of technocrats and elected officials.

This step in European economic history is an important one, not only for the two countries involved. The rest of the euro area will be keeping a close eye on the new leaders of Greece and Italy in the hope that under their rule Europe can make another step in the direction of moving on toward more integration rather than disintegration. Let’s hope the technocrats will do a good job balancing their jobs as prudent economists and clever domestic and European political leaders.

One of the striking aspects of the current crisis in the EU, which, as we all know, shows no sign of abating, is that trying to follow who is participating in decision making on it is quite problematic. Once we get beyond the EU leaders who are, obviously, in the spotlight, we are left with vague labels for very important political arrangements that may well be the future institutions of the EU. We hear proposals that the IMF should participate in enforcing and monitoring the new eurozone rules on national budgets for example. Apart from my sincere amazement that Europeans (and at least one vocal advocate in the Dutch press in the last week) are ready to outsource control of national budgets to an (otherwise perfectly capable) organization whose participation and voting rules are under reconstructions and whose strongest members in the future may not be Europeans, I am also left wondering whether the new decision making constructions are going to be transparent at all. The NRC of 8 November, for example, informs us that the ministers of finance are being sidelined in crisis decision making and the European Council – the heads of state and government are getting more powerful again. And then, what about the Euro Working Group? The Financial Times mentions them as ‘finance ministry technocrats’ . The NRC’s correspondent Caroline de Gruyter tells us that they are high level civil servants from the eurozone countries and Commission officials, led by the Italian Vittorio Grilli. But if we take on board her suggestion that they are the only ones who really understand what is going on in the financial markets, it would be nice to know who represents the member states there, beyond the little bits and pieces of information that we get now. After all, Europeans spent decades working out the institutional structure of the European Commission and the number of Commissioners, in treaties, debates, the constitutional convention, not to mention countless textbooks and articles. Presumably because we are concerned about nameless bureaucrats and technocrats taking political decisions on our behalf. With all respect for the difficult decisions the members of the EWG may be taking, it is still important at least to know who they are, if they will be the new technocrats making – well, preparing – political decisions on our behalf.

On a more general note, the new forms – and fora – of governance which are emerging during the crisis seem to replace many of the functions which the European Commission has been fulfilling, successfully, during decades of European integration. The advantages of the Commission have been that it was created to monitor bargains which the member states have found difficult to reach and keep. This appears to be exactly what we are looking for in the new arrangements – a watchdog. The Commission is also a body that can be subject to some democratic scrutiny through the European Parliament, unlike many of the Council working groups. And it represents all the member states, including small ones – something that cannot be said about some of the new intergovernmental discussion and decision making configurations led by the largest member states. The reason why I am returning to these well known textbook examples of what the Commission does is that mistrust in the EU, for example in the Netherlands, has led to a kind of willful ignorance of its institutions that encourages the use of ad hoc arrangements which are less known and transparent than what we already have.